Help To Buy After 5 Years: Your Options

It's been 5 years since you moved in with help to buy. Now you're considering a help to buy remortgage, you may not have already planned what to do with your help to buy after 5 years. If you are unsure what your options are, you've come to the right place. 

In this insight, we cover your options on handling your Help to Buy Equity Loan, whether that is remortgaging with help to buy, or moving to a new property and paying it back,

Key Takeaways

• If your help to buy equity loan is coming to the end of its first 5 years, you have 3 options: 1) Move home and repay it. 2) Remortgage to repay it. 3) Do nothing and pay interest only on the equity loan element.
• If you remortgage or payback your equity loan, you will need to instruct a conveyancer to remove the HTB charges from your property. This will come at an additional cost.
• The smallest repayment you can payback towards your equity loan is 10% of your property value.
• A product transfer might potentially provide a cheaper alternative to remortgaging as it could help you avoid conveyancing fees for a help to buy remortgage with a new lender.

In 2013, the government introduced the Help to Buy Equity Loan scheme. The scheme helped first-time buyers to get onto the property ladder. It helped buyers by reducing the time they spent saving for a deposit. At present, the scheme has helped over 350,000 people purchase a property in the UK.

How does Help to Buy work?

First-time buyers could benefit from a Government loan of up to 20% (or 40% if buying in London). This means that the buyer only needs to secure a 75% mortgage and provide a 5% deposit. 

For the first five years of your equity loan, you don't have to pay any interest to the government. However, starting in the sixth year, you'll be charged interest at a rate of 1.75% of the loan amount. This interest will be paid monthly along with your mortgage repayments.

Assuming you bought a property for £200,000 and borrowed 20% of the property value, your equity loan amount would be £40,000. After 5 years, you will start paying interest on your equity loan, which amounts to £700 annually or £58.33 monthly.

In April every year, the interest rate will increase in line with the Consumer Price Index plus 2%. In addition, until your equity loan is fully paid off, there will be a monthly management fee of £1.

Remember, paying this interest does not reduce your overall equity loan amount. This is an interest-only loan. At the end of the Help to Buy term (usually 25 years) you will still have this capital to repay.

If you do repay back some of your equity loan, your interest repayments will reduce. The smallest repayment you can make is 10% of the current market value of your home. 

When is Help to Buy ending for new applications?

Help to buy is already closed for new applications. It closed on the 31st October 2022. If you applied before this date, you have until 31st March to complete your purchase.

Help to Buy After 5 Years Options

Congratulations on getting on the property ladder with the help of your Help to Buy Mortgage. Initially, you agreed to a fixed mortgage product term of either 2 or 5 years. If you opted for a 2-year term, you have the option to either remortgage to a new lender, complete a product transfer, or remain on the Standard Variable Rate.

If you choose to remortgage to a new lender for a new fixed rate, you will need to complete a deed of postponement with the Help to Buy administration department, which can be done via your conveyancer at an additional cost. Alternatively, a product transfer may be a quicker option if your standard variable rate is costing you more, and you won't need to appoint a conveyancer.

After 5 years, the government will charge you interest on your equity loan, so it's time to consider your options and decide what's best for your personal circumstances.

Here are your options:

Help to Buy Remortgage

If your income can support it, you have the option to remortgage the full value of your existing mortgage, along with the outstanding equity loan.

However, this will result in higher repayments as you take on a larger repayment loan. If you're young enough, you may be able to extend your new mortgage to keep repayments in line with your budget, which would result in owning 100% of the property.

It's important to note that this option may result in a higher interest rate than what you were previously paying, as your Loan to Value will increase. Most lenders allow you to remortgage to a maximum value of 90%, and you will need to obtain a property valuation to calculate the equity loan's worth to repay it with your new mortgage.

However, it's worth considering that house prices fluctuate, so this option may not always be possible. 

When you opt to repay your help to buy loan, you will need to obtain a RICs valuation to determine how much you need to repay the government. Find out what to do if you find your help to buy valuation too high and you need to appeal.

Move home to clear your Help to Buy Equity Loan

If you're able to maintain your repayments and Help to Buy Equity Loan interest, you won't be forced to move, but it's an option to consider. Moving home may enable you to afford a deposit on a new property without the help of Help to Buy. You can obtain an agreement in principle from a mortgage adviser to understand what's achievable for you.

However, it's worth noting that you won't be able to take your Help to Buy Loan with you if you decide to move, so you must repay it in full.

Do nothing

If you choose to do nothing, you can stay in your property, but you'll need to take on the interest from the Equity Loan, which means your costs will go up. However, doing nothing might be the cheapest option compared to remortgaging.

For instance, if you're paying 1.75% interest on the Equity Loan, while the market rate is 5.5%, you can maintain the interest on the equity loan until you're ready to move or have saved enough to clear the equity loan with cash.

But keep in mind that doing nothing will move you from any fixed rate to a Standard Variable Rate, which is likely to increase your interest. It's essential to discuss your options with a Mortgage adviser who can assist you with remortgaging, product transfers, and moving home in any scenario.

Deciding Your Best Help To Buy After 5 Years Option

Before considering which product is best for you, it's crucial to assess your circumstances. Consider factors such as your current financial situation, including your income and credit score, to determine whether you can remortgage or move to a new home.

Also, review the terms of your existing mortgage, such as the interest rate on your current Help to Buy loan, the interest on the Standard Variable Rate, and how they compare with current market interest rates you're eligible for.

Additionally, think about your personal goals, such as whether you plan to move within the next few years or once the 5 years are up. Weighing up these factors before speaking to a Mortgage adviser will give you a clear idea of what direction you're heading in and any hurdles you need to consider.

Benefits of clearing your Help to Buy Equity Loan

Clearing your equity loan can benefit you in many ways, including:

• Owning 100% of your home without any government loans, which can boost your financial confidence and provide a sense of achievement.
• Having more flexibility in managing your property, including the ability to remortgage or move without additional conveyancing work.
• Saving interest in the long run as you pay back your loan and eventually repay the debt, eliminating the need to refinance to clear the interest-only part.
• Reducing stress and eliminating concerns about "what-ifs" that could impact your financial goals, such as a decrease in house prices.

What happens to your Help to Buy if house prices drop?

If house prices drop to a point where you're in negative equity, it can impact your flexibility. You may need to keep repaying your loan until you have enough equity to move or remortgage. For your Help to Buy loan, it means you'll have to start paying interest that the government charges.

If you can't remortgage, you may end up on a standard variable rate that increases your repayments. If paying back your loan becomes difficult, consider talking to your lender about your options.

Help to Buy After 5 Years next steps.

Speaking to a Mortgage adviser will be the best way to start to consider whether paying off your loan is right for you or not.  

If you are unsure where to start with seeking advice, you can complete the Sunny Avenue Fact Find, we use your answers to help us find the best-suited adviser. Your adviser then contacts you for a no-obligation conversation on how they can help. You decide how to proceed. The time together can be spent discussing the plans for your help to buy after 5 years and what exactly to do next.

Source: Gov UK & Money Helper